Greek PM 'certain' euro zone will accept loan deal, Germans soften

Reuters News
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Posted: Feb 20, 2015 4:35 AM

By Jan Strupczewski and Renee Maltezou

BRUSSELS/ATHENS (Reuters) - Greece's new prime minister said on Friday he was certain euro zone finance ministers would accept Athens' request for an extended loan as EU paymaster Germany softened its hostile tone.

The start of an emergency meeting of the 19-nation Eurogroup in Brussels was postponed until 1530 GMT (10:30 a.m. EST) to allow more time for preparatory talks among Greek, euro zone and IMF officials.

Hours before the talks, leftist Prime Minister Alexis Tsipras said in a statement to Reuters: "I feel certain that the Greek letter for a six-month extension of the loan agreement with the conditionalities that accompany it will be accepted."

A report by German magazine Der Spiegel that the European Central Bank was making contingency plans for a possible Greek exit from the currency area if the talks fail, on which the ECB declined comment, highlighted the high stakes.

Berlin and other euro zone hawks want guarantees that Greece will fulfill strict conditions in its international bailout, but Athens is determined to loosen austerity to revive its economy.

Tsipras had a long telephone call with German Chancellor Angela Merkel on Thursday and has spoken repeatedly to the leaders of France and Italy in the search for a solution that allows his radical government to hold its head high.

"Greece has done everything possible so that we can arrive at a mutually beneficial solution, based on the principle of double respect: respect both to the principle of EU rules and to the electoral result of member states," he said.

A day after it bluntly rejected the Greek approach, Germany sounded more conciliatory, saying Greece's latest proposal was a "good signal" but did not go far enough in its present form.

A Greek official said Athens had gone four-fifths of the way and it was up to its partners to cover the other one-fifth.

A spokeswoman for Merkel said the Greek request provided a starting point for further talks and the finance ministers would "hopefully lead to an agreement with Greece".

"The letter from the Greek finance minister makes clear that Greece remains interested in support from the European Union," spokeswoman Christiane Wirtz said. "This letter is a good signal which allows us to continue to negotiate."

Merkel was meeting in Paris with French President Francois Hollande, who promised Tsipras he would work on her to find a solution, according to a Greek official.

"COMMUNIST IN A BURBERRY SCARF"

The European Commission said it was confidence a deal was possible on Friday if all parties were reasonable, "but we are not there yet". The Dutch junior finance minister said he would ask the Greeks to give clearer guarantees they would live up to all the terms of its bailout deal.

Maltese Finance Minister Edward Scicluna echoed widespread exasperation with Greece when he told the Times of Malta: "I think they've now reached a point where they will tell Greece 'If you really want to leave, leave'."

Officials of euro zone hawks said their mood was cautiously more optimistic but a chronic lack of trust in Greece's new leaders, including Finance Minister Yanis Varoufakis, an outspoken Marxist economist and blogger, was hard to surmount.

"Even hardliners like us have to give the benefit of the doubt to a communist in a Burberry scarf," an official of one north European country said.

The 240 billion euro bailout expires at the end of this month and Greece could run out of money by the end of March without new external funds, people familiar with the figures say, driving it nearer to the euro zone exit.

Adding to pressure to reach a deal, Greek savers withdrew their money from the banks at an accelerating pace despite government assurances that there is no plan to introduce capital controls to stem the outflows.

Deposit outflows rose to over 1 billion euros in the past two days, some of the highest daily levels seen this year, two senior banking sources told Reuters.

Greeks are nervous ahead of a three-day weekend, given memories of capital controls imposed on Cyprus in 2013 over a long weekend, a senior banker said. Monday is a market holiday.

Tsipras, elected last month on a platform of scrapping the bailout, says austerity has strangled his country's economy and caused a humanitarian crisis.

U.S. Treasury Secretary Jack Lew weighed in to urge compromise in calls to his Greek, Dutch and French counterparts.

Washington is sympathetic to Greek demands for an easing of austerity and worried that a breakdown in talks could affect an already weak global economy.

The German member of the European Commission, Guenther Oettinger, said he believed Greece and its creditors should be able to reach a deal but it might take another meeting of euro zone leaders next week.

"We are working so that Greece stays in the euro zone," Oettinger told Deutschlandfunk radio. "On this basis I think an agreement will still be possible in the next eight days -- if necessary via a further meeting of government leaders."

DEADLINE?

Eurogroup chairman Jeroen Dijsselbloem has said Friday is the deadline for Greece to reach a deal since any extension or change to the bailout agreement that expires on Feb. 28 would have to be approved by several national parliaments.

However, EU deadlines often slip and Merkel has in the past agreed financial rescues only at the very last moment when she could tell Germans the future of the euro zone was at risk.

Berlin is Greece's biggest creditor, owed 50 billion euros as its share of the EU/IMF bailouts. As Europe's biggest economy, it would take a hit in the turmoil that might ensue if Greece defaulted and left the euro area.

However, whether for tactical reasons or out of deep exasperation with Athens, Berlin has conveyed the message that a Greek exit, while not desirable, would be manageable. German Finance Minister Wolfgang Schaeuble, who has taken the hardest line, has pointed to calm on world markets this week.

European shares inched up on Friday, trading close to Thursday's seven-year high, but borrowing costs for peripheral euro zone governments also rose in a sign of uncertainty about the outcome with Greece.

(Additional reporting by George Georgiopoulos, Angeliki Koutantou and Deepa Babington in Athens, Noah Barkin in Berlin, John O'Donnell and Paul Carrel in Frankfurt and; Writing by Paul Taylor; Editing by Giles Elgood)